Strategic sourcing and category management have been critical during the pandemic—but these practices should continue in a post-pandemic world. For companies that haven't looked at ways to drive sustainable bottom-line savings through strategic sourcing and category management, the time to act is now.
Many companies are still chasing short-term savings year after year, but this approach isn't sustainable or efficient. Suppliers will eventually stop participating in aggressive savings-driven sourcing activities. Instead of looking for the lowest-cost provider, companies should focus on the total cost of ownership (TCO) through the lens of category management.
A category management approach to sourcing can lead to sustainable savings—year after year, rather than a one-time benefit—as well as more transparency that can result from ethical sourcing and supplier diversity policies and programs. An early trend picking up pace is the need for companies to adopt an Inclusive & Diverse (I&D) supplier policy and practices as part of their overall environmental, social and governance (ESG) strategy. These policies provide procurement and companies an opportunity to work more collaboratively with their suppliers and gain more visibility into the supply chain.
How the pandemic changed the supply chain
The conversation around supply chains used to be about efficiency and driving down costs, which often meant looking for low-cost country sourcing options—oftentimes at the cost of a less diverse supply chain. But during the COVID-19 pandemic, we've seen challenges arise from this paradigm, such as the inability of the supply chain to keep up with demand, delays at the border and skyrocketing prices for essential supplies.
Many companies were challenged to respond to supply shortages because they lacked visibility into their supply chain.
Companies that weren't well-diversified also found themselves in trouble. Risk assessments were conducted in a frantic state as organizations scrambled for alternative sourcing options. Some companies assessed opportunities with domestic production and/or supply to see if it could be ramped up quickly enough to meet demand.
It also meant, in many cases, that companies started working with vendors they hadn't worked with previously. Bringing on a new vendor typically requires rigour and a disciplined approach, but there wasn't time for that during supply chain disruptions at the start of the pandemic, so companies had to take risks—and potentially a few hits—along the way.
Many learned the hard way about the importance of third-party risk management—so now is the time to put more formal processes and systems in place to be prepared for whatever future disruptions come our way. Here are four key areas to focus on to find sustainable savings in your supply chain:
While strategic sourcing is critical, many companies are also looking to cut costs as we come out of the pandemic, so finding a balance is important. Cutting your spend year after year isn't sustainable. Instead, take a long-term view to sustainable savings through better management of the supply chain and contracts, as well as working with strategic suppliers.
Category management involves undertaking the necessary market assessments, understanding the supply chain and understanding alternative vendors. But this won't be successful if procurement is siloed from the rest of the business. For many organizations, this may mean implementing a huge strategic change, so you need to set the right framework and the right governance. But you also need to get your stakeholders on board.
As part of your approach to category management, look to incorporate ethical sourcing. This generally falls into the bucket of ESG and it does require commitment from leadership. By working with your suppliers, you'll better understand which vendors they're working with all the way down the supply chain—and if, for example, they have the right labour and environmental standards in place. It's not enough to know the ethical sourcing and environmental impacts of your immediate vendor—you also need to know the impacts of your vendor's vendors. This improved visibility into the supply chain will usefully allow you to better identify and implement improvement strategies and manage risk.
In addition to ethical sourcing, it's also important to have Diverse & Inclusive (D&I) policies in place for supplier diversity, which provides multiple channels from which to procure goods and services from vendors with unrepresented or underserved groups. But it's necessary to move beyond policies to take action. This starts with tracking data on how many suppliers meet the criteria of diversity: Put targets in place, track your metrics and report on the results. Supplier diversity helps bring different perspectives, opening up more possibilities for innovation and increasing resilience in your supply chain.
The time is now
The time is ripe for companies that have been thinking about strategic sourcing and category management to get started now. Without it, you can only hope to achieve short-term, one-time savings, and you won't have third-party risk management embedded into your strategic sourcing process.
If your organization isn’t yet tapping into these practices, the time to act is now.
Implementing strategic sourcing and category management can sound like a daunting task, but it doesn't have to be done all at once: Start small, do it piece by piece, and earn your wins with stakeholders along the way. That way, you can find sustainable savings in your supply chain, while meeting your ESG and D&I goals—and the next time there's a disruptive event, you'll be ready.
We help clients transform their supply chains, increase their resilience and manage risks.
Please contact us to find out more.